State of NC ex rel. Long v. Alexander & Alexander

• Decision Date: 26 February 1988
• Docket Number: No. 86-1247-CIV-5.,86-1247-CIV-5.
• Citation: 680 F. Supp. 746
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: STATE OF NORTH CAROLINA, on relation of James E. LONG, Commissioner of Insurance, as Rehabilitator of the Beacon Insurance Company, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES, INC., et al., Defendants.

680 F. Supp. 746

STATE OF NORTH CAROLINA, on relation of James E. LONG, Commissioner of Insurance, as Rehabilitator of the Beacon Insurance Company, Plaintiff, v. ALEXANDER & ALEXANDER SERVICES, INC., et al., Defendants.

No. 86-1247-CIV-5.

United States District Court, E.D. North Carolina, Raleigh Division.

February 26, 1988.

V. Lane Wharton, Jr., Hunter, Wharton & Howell, William L. Thorp, Thorp, Fuller & Slifkin, Raleigh, N.C., James L. Rohm, Baskin, Flaherty, Elliott & Mannino, Philadelphia, Pa., for plaintiff.

C. Thomas Ross, Craige, Brawley, Liipfert & Ross, Jim D. Cooley, Womble, Carlyle, Sandridge & Rice, Winston-Salem, N.C., James E. Walker, Kennedy, Covington, Lobdell & Hickman, Douglas M. Martin, Palmer, Miller, Campbell & Martin, Charlotte, N.C., for defendants.

ORDER

TERRENCE WILLIAM BOYLE, District Judge.

FACTUAL BACKGROUND

James E. Long, the North Carolina Commissioner of Insurance, filed this action pursuant to his statutory powers under Chapter 58 of the North Carolina General Statutes (N.C.G.S.) as the rehabilitator of the Beacon Insurance Company (Beacon). Beacon became insolvent in 1984 and was placed in voluntary rehabilitation by court order on February 20, 1984. The Commissioner filed this action on behalf of Beacon alleging causes of action under the federal RICO statute and under state unfair business and trade practice laws. The Commissioner alleges that through a concerted conspiracy the named defendants defrauded Beacon, causing it to become insolvent.

Count one of the complaint alleges that since 1978 defendant Alexander & Alexander conspired with other Alexander subsidiaries and affiliates to contrive products liability insurance for various domestic companies. The Commissioner alleges that the policies written were unsound and actuarially imprudent. The defendants then obtained "reinsurance" on these risks through brokers in other markets. The complaint alleges that, through a process of infiltration of Beacon and misrepresentation, defendants were able to obtain insurance from Beacon on these imprudent risks.

Count two of the complaint alleges that the "Toomey Conspirators" including defendants Colin Bird, the Alexander Howden parties, B.F.G. Toomey Associates, and Neill W. Portermain engaged in a similar conspiracy to defraud Beacon. The named defendants allegedly recommended Beacon to various customers despite the knowledge that Beacon had been infiltrated by members of the conspiracy. Beacon would then write unsound insurance policies and the conspirators would reap excessive commissions.

Count three of the complaint alleges that Colin Bird and the Alexander Howden parties conspired to eliminate Toomey from some dealings and directly write new policies for Beacon in the London insurance market. These policies were also allegedly unsound and were written for the sole purpose of generating excessive commissions for the benefit of the conspirators.

Count four alleges that Bird, the Alexander Howden parties and the Puckett-Scheetz parties conspired to monopolize the insurance market for amusement parks, driving out competition by offering insurance at unreasonably low rates for such risks. These policies were offered through Beacon and were also allegedly fraudulent in that they did not reflect the actual risks of the venture.

Count five alleges a conspiracy involving the Alexander parties to monopolize the medical malpractice insurance market in the state of Washington. Again, Beacon was used to write unsound policies that did not reflect the actual risks involved. The conspirators allegedly wrote these policies for the purpose of generating excessive commissions.

The Commissioner alleges that the end result of the various conspiracies is that the Beacon's liabilities exceed its assets by over $75 million. Seventeen defendants have been named in the original complaint and have been charged with various RICO and state business practice violations. Several of the defendants are foreign companies. Jurisdiction and venue motions have been filed along with challenges to the sufficiency of the complaint.

The court has reviewed the parties' written memoranda, heard oral argument and is now prepared to address all pending motions.

DISCUSSION

I.

(A) The following defendants are hereby dismissed from the action for plaintiff's failure to state a claim upon which relief can be granted against them:

(1) Alexander Howden Holding Company

(2) Alexander Howden, Ltd.

(3) Alexander Howden Service, Inc.

(4) Alexander Underwriters, Ltd.

(5) Hamilton Underwriters, Ltd.

(6) American Specialty Risk Insurance Company

This dismissal is made pursuant to Fed.R. Civ.P. 12(b)(6).

(B) The claims against defendant, Rydata Ltd. (Bermuda), are dismissed for lack of jurisdiction over the person under Fed.R. Civ.P. 12(b)(2).

(C) The federal RICO claims under 18 U.S.C. § 1961-68 asserted against defendants Puckett Group, Inc. and Puckett-Scheetz Insurance Company, Inc. are hereby dismissed for failure to state a claim upon which relief can be granted.

(D) Plaintiff makes no objection to the dismissal of the indicated claims against defendants named in this section.

II.

(A) The court hereby orders that any and all claims asserted by plaintiff on behalf of creditors or policyholders of the Beacon Insurance Company be dismissed. The provisions of N.C.G.S. § 58-155.1 through § 58-155.36 provide that the plaintiff represent the insurance company as its rehabilitator, and in this capacity he may conduct the business of the insurer or take other steps to conserve its affairs.¹ No claims may be asserted by plaintiff against defendants on behalf of the creditors or policyholders of the insurance company.

(B) The court finds that the plaintiff has standing to bring this action in his capacity as insurance commissioner and rehabilitator of the Beacon Insurance Company. Subsection (b) of N.C.G.S. § 58-155.11 reads in part:

As domiciliary receiver the Commissioner shall be vested by operation of law with the title to all of the property, contracts, including reinsurance contracts or treaties, and rights of action, and all of the books and records of the insurer wherever located, as of the date of entry of the order directing him to rehabilitate or liquidate a domestic insurer....

(emphasis added). The present claims are claims Beacon would have had if not for its insolvency.

III.

(A) Defendants contend that the court does not have personal jurisdiction over British defendants Colin Bird and Alexander Howden Group Ltd. Federal Rule Civ. P. 4(i) directs the manner of service upon a party "not an inhabitant of or found within the state in which the district court is held" if service is authorized by a statute referred to in Rule 4(e). The first sentence of Rule 4(e) provides that when service is authorized by a federal statute or order of court, it can be done in the manner provided for in the statute or if there is no statute then in the manner stated in Rule 4. The second sentence of Rule 4(e) provides that when service is made pursuant to a statute of the state in which the court sits, the manner of service may be made in accordance with that rule. In effect, Rule 4(e) allows the district court to exercise personal jurisdiction over nonresident defendants on the basis of a federal statute or on the basis of a state "long-arm" statute.²

In the present case the federal RICO statute does not provide for service on foreign defendants. 18 U.S.C. § 1965.³ Accordingly, the court cannot exercise personal jurisdiction over foreign defendants Alexander Howden Group, Ltd. and Colin Bird on these grounds. Nordic Bank v. Trend Group, 619 F.Supp. 542 (S.D.N.Y. 1985); Soltex Polymer v. Fortex Industries, 590 F.Supp. 1453 (E.D.N.Y.1984).

Under Rule 4(e), however, made operative through Rule 4(i), the district court may turn to the state long-arm jurisdiction statute in the absence of federal authorization for personal jurisdiction. Although state long-arm jurisdiction usually comes into play primarily in federal diversity cases, the plaintiff can use the state long-arm statute when subject matter jurisdiction is premised solely upon federal question grounds. Wright & Miller, Federal Practice and Procedure: Civil 2d § 1115; United States v. First National City Bank, 379 U.S. 378, 85 S.Ct. 528, 13 L.Ed.2d 365 (1965).

Aside from the permissive wording of Rule 4(e) allowing a federal court to use state long-arm jurisdiction, this is the only logically consistent interpretation of the RICO statute. The nationwide service of process provisions of RICO were intended to liberalize process requirements, allowing a court to bring all members of a nationwide conspiracy together at once. Butcher's Union v. SDC Investment, 788 F.2d 535 (9th Cir.1986). If § 1965(b) were to be the exclusive means of authorizing service on nonresident defendants, then a selection of foreign defendants who would be amenable to service under state long-arm jurisdiction would escape service despite Congress' intent, when writing § 1965(b), to bring more RICO defendants into court.

(B) Under North Carolina long-arm jurisdiction (N.C.G.S. § 1-75.4) both Colin Bird and Alexander Howden Group Ltd. are contemplated defendants as the statute extends its reach to the limits allowed under the due process clause of the United States Constitution. Sparrow v. Goodman, 376 F.Supp. 1268 (W.D.N.C.1974). Specifically, and at a minimum, subsections (3) and (4) of § 1-75.4 provide the basis for which defendants may be brought before the court.⁴

(C) Once long-arm jurisdiction has been invoked, a constitutional due process inquiry must be undertaken. When a federal court sits in a case based upon diversity jurisdiction, the inquiry is made under the Fourteenth Amendment. When a federal court sits in federal question jurisdiction, even if it has borrowed long-arm jurisdictional powers from the state under Rule 4(e), the better view is that the inquiry is...